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Sunday, November 30, 2014

Russia’s New Aid Convoy to Rebels Riles Ukraine as Crisis Mounts.
Russia is sending a convoy of more than 100 vehicles with what it
says is humanitarian assistance to rebel-held territory in Ukraine,
drawing accusations from the authorities in Kiev that it’s aiding
separatists. The dispatch marks the eighth such mission since August by
Russia, which says it’s acting to mitigate the humanitarian suffering
caused by the unrest. Ukraine has called the convoys an invasion and
blamed Russia for the toll on civilians. The repeated sight of trucks covered with white tarpaulins
crossing from Russia underscores Ukraine’s loss of control over
parts of the border amid its bloodiest conflict since the Second
World War.

Russian Warships Enter English Channel Amid Tension Over Ukraine. Russian
warships entered the English Channel amid simmering tensions with the
U.S. and Europe over the conflict in Ukraine. The squadron will conduct
exercises in the area, according to a spokeswoman for Russia’s
Northern Fleet. At least four vessels led by the anti-submarine ship
Severomorsk plan drills in the expanse of water separating England from
continental Europe, the state-run news service RIA Novosti said
yesterday, citing a statement by the Russian Navy. NATO said the foray
isn’t “alarming, it’s normal maritime traffic.” Russia is embroiled in
its most serious confrontation with the U.S. and its European allies
since the collapse of the Soviet Union in 1991.

ETF Tumbles on Crude’s Plunge as Ukraine Crisis Weighs.
The biggest exchange-traded fund for
Russian equities plunged to a five-year low amid concern a deepening oil
rout will push the world’s largest energy exporter, already beset by
international sanctions, further toward a recession. The Market Vectors Russia ETF (RSX) sank 5.5 percent on Nov. 28 to $19.56, the lowest since April 2009, extending November’s
tumble to 11 percent. The ruble, the worst performing emerging-market currency in 2014, fell for the first time below 50 versus
the dollar, completing a 13 percent slide for the month.

ECB’s Lautenschlaeger Rebuffs QE as German Opposition Grows. European
Central Bank Executive
Board member Sabine Lautenschlaeger said quantitative easing
isn’t the right policy choice for the euro area currently,
hardening a split among officials over the right response to slowing
inflation. “A consideration of the costs and benefits, and the
opportunities and risks, of a broad purchase program of government bonds
does not give a positive outcome,” Lautenschlaeger, a former
Bundesbank vice president, said at an event in Berlin today. “There are
very few shared competencies in fiscal policy. As long as this is the
case, the ECB’s purchase of government securities is inevitably linked
to a
serious incentive problem.”

Japan Dairies Losing as Abe’s Weak Yen Boosts Corn Costs. Japan’s dairies and cake lovers just can’t seem to catch a break. A weakening yen is making it more expensive for farmers to import the U.S. corn their cows eat at a time when record crops
have reduced livestock-feeding costs around the world. And while
Japanese milk demand is increasing and prices of some dairy
products are at record highs, domestic production is the lowest
in three decades even as rising output everywhere else creates a
global surplus.

Xi Says China Will Keep Pushing to Alter Asia Security Landscape.
China will continue its efforts to rewrite Asia’s security architecture
to increase its influence, President Xi Jinping said in a foreign
policy speech over the weekend, according to Xinhua, the state-run news
agency. “We should be fully mindful of the complexity of the evolving international architecture, and we should also
recognize that the growing trend toward a multi-polar world will
not change,” Xi said, according to Xinhua.

Hong Kong Protesters Clash With Police for Street Control. Hong
Kong police used batons, pepper spray and water hoses in battles with
pro-democracy protesters for control of streets near the government’s
headquarters, as
student leaders pledged to fight on for free elections. Student leaders called this morning for people to head to
the Admiralty district as demonstrators, some with makeshift
shields and head gear, clashed with police along Lung Wo Road
and other junctions near the main protest site in the city.
Traffic was flowing on the roadway as of 9:30 a.m. local time.

Global Bond Yields Decline to 18-Month Low on Inflation Outlook. A gauge of government bond yields
around the world fell to an 18-month low as tumbling oil prices
push down inflation expectations and economic growth falters. The
average yield among securities in the Bank of America Merrill Lynch
World Sovereign Bond Index dropped to 1.59 percent at the end of last
week, the lowest level since May 2013. Australian 10-year yields dropped
below 3 percent for the first
time in two years.

Chinese Stocks in Hong Kong Fall Most in Two Weeks on PMI Data.
Chinese stocks trading in Hong Kong fell, sending the benchmark index
to its biggest loss in two weeks, as a drop in the nation’s
manufacturing gauge increased concern economic growth is slowing. Jiangxi
Copper Co., the largest Chinese producer of the metal, plunged 4
percent, while PetroChina Co., the biggest oil company, declined 2.7
percent. Ping An Insurance (Group) Co., China’s second-biggest
insurer, gained 2.2 percent after it said it will raise HK$36.8 billion
($4.75 billion) in a Hong Kong share sale. Airlines rallied in Shanghai
as oil prices extended losses, while lenders climbed after the
government said it will start an insurance system for bank deposits. Hong Kong’s Hang Seng China Enterprises Index (HSCEI) slipped 1.2
percent to 11,003.28 at 10:51 a.m.

Ringgit Set for Biggest Two-Day Drop Since 1998 on Oil Decline.
Malaysia’s ringgit headed for its biggest two-day decline since the
1997-98 Asian financial crisis and led losses in emerging markets on
concern a protracted slide in crude will erode the net oil-exporting
nation’s revenue. The currency weakened 1.3 percent to 3.4250 per dollar as
of 10:38 a.m. in Kuala Lumpur, according to data compiled by
Bloomberg. The ringgit has dropped 2.3 percent in two days, the
sharpest decline since June 1998.

Commodities Retreat to Five-Year Low as Oil Tumbles With Gold. Commodities fell to the lowest level
in more than five years as oil sank on prospects for a glut,
gold fell after Swiss voters rejected a move to force the
central bank to buy more bullion and data from China confirmed a slowdown in the world’s top user of fuels and metals. The
Bloomberg Commodity Index (BCOM) of 22 raw materials lost as much as
1.3 percent to 111.4738, the lowest level since May 2009, and traded at
111.4777 at 11:03 a.m. in Singapore. West
Texas Intermediate crude fell below $65 a barrel for the first
time since July 2009, while gold, silver and copper declined.

Miners ‘Covering Their Eyes’ on China’s Commodity Cliff. After
spending $1 trillion since 2002 on projects to feed China’s commodity
boom, the world’s mining companies have a lot riding on their biggest
customer. While commodities may be trading at five-year lows, the heads
of three top miners BHP Billiton Ltd. (BHP), Vale SA (VALE3) and Rio
Tinto Group (RIO) last week all backed China, the world’s second-biggest
economy, to keep buying increasing amounts of their products deep into
the next decade. Not everyone agrees. “The commodity guys are just
too optimistic,” Tao Dong, chief regional economist for Asia excluding
Japan at Credit Suisse Group AG in Hong Kong, said in an interview,
without referring to particular companies.

BHP(BHP) Sees No Slowdown in Iron-Ore Supply Increase as Prices Slump. BHP
Billiton Ltd. (BHP), the world’s biggest mining company, signaled there
will be no slowdown in the drive by global iron-ore producers to boost
production even as prices slump. “Even the iron-ore price where it is today can induce more volume,” Jimmy
Wilson, BHP’s president of iron ore, said in an interview broadcast
today by Australia’s Nine Network. “If that volume doesn’t come from our
business, it’s going to come from
other businesses around the world and other countries around the
world.”

OPEC Gusher to Hit Weakest Players, From Wildcatters to Iran.
Saudi Arabia and its OPEC allies’ firm stand against cutting crude
output to slow the plunge in oil prices has set the energy world on a
painful course that will leave the weakest behind, from governments to
U.S. wildcatters. A
grand experiment has begun, one in which the cartel of producing
nations -- sometimes called the central bank of oil -- is leaving the
market to decide who is strongest and how to cut as much as 2 million
barrels a day of surplus supply.

Wall Street Journal:

Bond Funds Load Up on Cash. Portfolio Managers Gird for Volatility Amid Expected Rate Increase. Large bond funds are holding the most cash since the financial crisis as
portfolio managers brace for potential price swings and unruly trading
ahead of an expected Federal Reserve rate increase in 2015.

Russian Firms Hire Lobbyists to Fight Senate Sanctions. Energy Company Partly Owned by Friend of Putin Spends at Least $280,000 on Effort. A Russian energy company partly owned by a friend of President
Vladimir Putin has spent at least $280,000 in lobbying fees in the U.S.
aimed in part at opposing a Senate bill that seeks to broaden U.S.
economic sanctions against Russia for invading Ukraine, according to
lobbying-disclosure records.

China's slowdown hits iron-ore prices. China's hunger for minerals to build skyscrapers, cars and bridges
produced a decadelong surge in the price and production of key
commodities.Now, exporting nations are feeling the hit as the China-fueled boom slows. Topping
the list are big commodity players Australia and Brazil, but also
smaller resource-rich countries, such as Guinea, Indonesia and Mongolia,
where minerals make up a disproportionate share of the economy and
employment.

CNBC:

WHO: Ebola Toll Leaps Higher to Nearly 7,000 in West Africa. (video) The death toll from the worst Ebola outbreak on record has reached
nearly 7,000 in West Africa, the World Health Organization said on
Saturday. The toll of 6,928 dead showed a leap of just over 1,200 since
the WHO released its previous report on Wednesday. The U.N. health
agency did not provide any explanation for the abrupt increase, but the
figures, published on its website, appeared to include previously
unreported deaths. A WHO spokesperson was not immediately available for
comment.

Terrorists Plotting to Blow Up 5 Planes in Christmas 'Spectacular': Report. Terrorists
are plotting to blow up five passenger planes from European cities as
part of a Christmas “spectacular,” according to a new report. “Everyone is expecting something catastrophic very soon,” a well-placed source told Britain’s Sunday Express.
“We’ve been told that five planes are being targeted in a high-profile
hit before Christmas. They’ve been waiting for the big one.” A source told The Post that London authorities were the first to uncover the threat, which would involve mid-air bombings. “There is a credible threat that they’re concerned about. They’ve known about it for awhile,’’ a source said.

BOTTOM LINE: Asian indices are mostly lower, weighed down by commodity and technology shares in the region. I expect US stocks to open modestly lower and to maintian losses into the afternoon. The Portfolio is 50% net long heading into the week.

Russian Recession Risk Seen at Record as Oil Saps Economy. Russia
will sink into recession at a Urals price of $80 a barrel, seven years
after its economy grew 8.5 percent when its chief export oil blend
averaged near $70, according to a Bloomberg survey of analysts. Urals at $80, or about $3 cheaper than its average in the month through November 15, will tip Russia into a contraction,
according to the median estimate of 32 economists. The
probability of a recession in the next 12 months rose to 75
percent, the highest since the first such survey more than two
years ago, according to another poll.

Abe Tested by Weak Retail Sales as Japan Election Looms: Economy. Japan’s inflation slowed for a third month and retail sales fell more than forecast, showing the economy continues to struggle from a sales-tax
increase as Prime Minister Shinzo Abe heads into an election next month. The Bank of Japan’s key price gauge increased 2.9 percent in
October from a year earlier, equivalent to a 0.9 percent gain when the
effects of April’s tax bump are excluded. Retail sales dropped 1.4
percent from September, more than a 0.5 percent decline forecast in a
Bloomberg News survey.

Kuroda’s Easing ‘Incomprehensible’ to Ex-BOJ Chief Economist.
Prime Minister Shinzo Abe has tied the Bank of Japan’s hands with a
delay in a sales-tax increase that’s hurt confidence in the nation’s
finances, a former chief economist at the central bank said. Damaged trust in Abe’s pledge to cut the deficit will make
it “extremely difficult” for the BOJ to exit record stimulus
without risking a bond yield surge, Hideo Hayakawa said in an
interview yesterday. More easing would also be tough because
Governor Haruhiko Kuroda effectively has made fiscal improvement
a premise for further monetary stimulus, he said.

Record China Downgrades Test PBOC as More Defaults Seen. Rating companies say defaults in China will spread as the central
bank’s interest rate cut will do little to stop a wave of maturities
from worsening record debt downgrades. Chinese credit assessors
slashed grades on 83 firms this year, already matching the record number
in all of 2013, according to data compiled by Shenzhen-based China
Investment Securities Co. Companies must repay 2.1 trillion yuan ($342
billion) in the first six months of 2015, the most for any half, data
compiled by Bloomberg show.

Cameron to Set Out Plan to Cut Migration, Raising EU Exit Threat. David
Cameron will raise the prospect of Britain leaving the European Union
if fellow leaders don’t agree to let him restrict access to welfare
payments for migrants. In a speech in central England today, the
prime minister will demand that Europeans arriving in the U.K. receive
no welfare payments or state housing until they’ve been resident for
four years. He’ll say they shouldn’t receive unemployment benefits and
should be removed from the country if they don’t
find work within six months.

Commodities Slump to Five-Year Low as Crude Oil Drops on OPEC. Commodities retreated to a five-year
low as crude oil tumbled after OPEC refrained from cutting
output to ease a global glut. Gold and copper also declined. The
Bloomberg Commodity Index (BCOM) of 22 raw materials dropped as much as
1.9 percent to 115.2838, the lowest since July 2009, before trading at
115.29 by 1:26 p.m in Singapore. The index resumed trading today
after the U.S. Thanksgiving holiday yesterday when Brent crude dropped
6.7 percent after a meeting of the Organization of Petroleum Exporting
Countries in Vienna
took no action to relieve the supply glut.

BOTTOM LINE: Asian indices are mostly higher, boosted by consumer and industrial shares in the region. I expect US stocks to open modestly higher and to weaken into the early close, finishing mixed. The Portfolio is 50% net long heading into the day.

Japan Is Running Out of Options by William Pesek. Minutes from the central bank's Oct. 31 board meeting, at which
officials surprised the world by expanding an already massive
quantitative-easing program, show that Kuroda now has a budding mutiny
on his hands. Many of his staffers think the central bank has already
gone too far to weaken the yen and buy virtually every bond in sight.
That's a problem for Kuroda and Abe in two ways.

Asian Stocks Rise for Fourth Day as Materials Shares Lead Gains.
Asian stocks rose, with the regional benchmark index heading for a
fourth day of gains, as materials and health-care shares advanced,
countering a decline in Japan’s Topix (TPX) index amid a stronger yen. The
MSCI Asia Pacific Index (MXAP) added 0.1 percent to 140.90 as of 9:03
a.m. in Tokyo after rising 1.1 percent the past three trading days.
Japan’s Topix slid 0.3 percent as the yen gained
0.1 percent to 117.81 per dollar after advancing 0.3 percent
yesterday.

Oil Bust of 1986 Reminds U.S. Drillers of Price War Risks.
The last time that U.S. oil drillers got caught up in a price war
orchestrated by Saudi Arabia, it ended badly for the Americans. In
1986, the Saudis opened the spigot and sparked a four-month, 67 percent
plunge that left oil just above $10 a barrel. The U.S. industry
collapsed, triggering almost a quarter-century of production declines,
and the Saudis regained their leading
role in the world’s oil market.

RBA’s Lowe Sees Aussie Dollar Falling With Commodity Prices. Australia’s
dollar is likely to drop in line with commodity export prices, central
bank Deputy Governor Philip Lowe said, as the currency hit a four-year
low. “If the exchange rate is to play its important stabilizing
role, it needs to go down when the terms of trade and investment are
declining,” Lowe said in a speech in Sydney late yesterday.
“We have seen some adjustment, but if our assessment of the
fundamentals is correct we would expect to see more in time."

Two mini–flash crashes rock stock market Tuesday.
In two separate instances Tuesday, stocks plummeted sharply for a brief period before returning to normal. At
around roughly 10:18 a.m. Eastern, 88 stocks fell or rose by 1% or
more. Eric Hunsader, founder of Nanex LLC, pointed out the changes on
his Twitter feed.

BOTTOM LINE: Asian indices are mostly higher, boosted by metals/mining and industrial shares in the region. I expect US stocks to open modestly higher and to weaken into the afternoon, finishing mixed. The Portfolio is 50% net long heading into the day.

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